I am a business consultant to an owner of a recruiting company specializing in real estate property managers.
The big problem that she has been having for the last two years has been non-payment of contingency placement fees.
Researching the law has been very difficult because relevant published cases are hard to find. I read a lot of real estate brokerage law, but there are major differences in fulfillment of the contract.
To enforce a real estate brokerage agreement, all you need to show is that you brought a buyer “ready, willing and able” to purchase at the listing price. In contrast, selecting a human being to work for a client has many variables, rather than just referring someone qualified.
So the reported cases are really not applicable to the search business.
I purchased The National Placement Law Center Fee Collection Guide a few weeks back, and have read it from cover to cover. It has proven to be an invaluable source of reference on placement law. In the two years that I have been researching this field, your remarkable book has been the only one-stop reference guide I could find.
Whilst your book covers virtually every scenario, I could not find an answer to our particular set of circumstances:
The typical property management company has one or two central offices from which they do their recruiting and hiring, but most property managers they employ work on-site at third party locations (e.g., running high-rise condominiums or home owners’ associations). Although the property managers all work on-site at a third party’s premises they are usually hired as direct employees of our client, the management company.
Here is the problem:
A client asks us to recruit a property manager to run Building A, which pays $100,000 annually, but then hires our candidate to run Building B, which pays $200,000. Then they claim that they did not employ the manager for the job they placed with us – so no fee!
Now here is my question:
The NPLC Fee Collection Guide states that each job order forms a unique contract. But what if the only differences are the original location and salary? It’s the same employer and the same candidate.
Does the single job order become two separate contracts (unenforceable) or remain the same contract (enforceable)?
Thank you for considering this situation and for your contribution to our success!
Jeff Says: Rely Here on Promissory Estoppel
Great hearing from you, and that you’re learning much.
Thanks for the unsolicited testimonial about The National Placement Law Center Fee Collection Guide (with Case Citations).
Unlike a real estate broker listing agreement, a job order (search assignment) is not a contract. An underlying fee agreement is also not a contract. You don’t have to recruit, and the so-called “client” doesn’t have to hire. Nobody’s legally bound. Ergo, no contract.
The JO is a Wishlist
A fee agreement is nothing more than a recital of terms and conditions of an executory (unperformed) contract. A job order is nothing more than a wishlist.
Just be sure those underlying terms and conditions – your fee agreement or the employer’s PSA (placement service agreement) – aren’t position-specific! When you get lured into a specific position, you’re inviting the employer to merely just change the job title to avoid the term – the contractual obligation.
For learning purposes, I’m going to analyze this as though your fee schedule was mistakenly position-specific.
The Fee Collection Guide is my favorite of the 25 books I’ve written. Some are worldwide bestsellers for jobseekers, but the Fee Collection Guide is the headhunter’s blowgun. Over the past 25 years, that killer-biller has probably helped collect tens of millions in well-earned placement fees.
The other must-have for you and your recruiter relatives is Contract as Promise, by Harvard Law Professor Charles Fried. It’s brilliant, and just what you need to prevent an employer lawyer from getting a promotion for saving a five-figure fee.
Most JOC collection inquiries aren’t about placement fees at all! They’re about finder’s fees. That’s because the feefight is almost always about the find. Sometimes it’s headhunter hernias over showing that the find caused the hire. Other times it’s referral periods expressed (by a contract) or implied (by custom and usage) showing strict liability regardless of the cause of the hire.
Those are finder’s fee issues. Yours is a post-find placement fee deal.
This gives me the opportunity to share the placement fee-getter we introduced in Chapter 25 of the Fee Collection Guide entitled “A Simplified Legal Theory to Win Fee Collection Cases.” It’s helped many recruiters collect true post-find placement fees through the little-known concept of reliance damages.
Introducing Promissory Estoppel
That five-figure fee-getter theory is known as promissory estoppel. Every contingency-fee recruiter within the sound of my voice must know it well to collect true placement fees.
Promissory estoppel was developed by legal scholars in the Restatement of Contracts, Section 90. It is a substitute for the consideration that merges with an offer and an acceptance to form the legally-enforceable oral modification to the original written fee agreement. Conceptually, it’s a mini-contract that alters the original terms of the contract.
So far, so good. But if it’s a mini-contract, what about the necessity of consideration to support it? When I ask about the definition of consideration in a workshop, the answer is automatically “Money.” But there’s no money being paid by the employer, and you’re sure not paying anything to make the placement. So that’s not it.
Consideration refers to a benefit or detriment that is given in exchange for a promise; the employer’s promise to pay the fee. The benefit is your assistance in placing a client-referred candidate. The detriment is not working on other searches or not placing the candidate elsewhere.
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Explore the Role of Incentives in Performance Management
As Professor Fried masterfully explains in Contract as Promise, the purpose of consideration is merely to show that the parties intended to be bound. That they established an enforceable relationship of rights and liabilities. This ripens an unenforceable mini-agreement into an enforceable mini-contract.
So the substitute for consideration known as promissory estoppel arises when:
1. The employer makes a promise.
Paraphrasing your fee agreement (or the employer’s PSA), “If you recruit, refer, and set up the initial interview with someone, then we hire that person, we’ll pay you the agreed fee.” (So your fee schedule sets up an express promise to pay.)
2. You justifiably rely on that promise.
Justifiable reliance (acting on good-faith belief) by fully doing what the employer wanted with the reasonable expectancy of getting paid pursuant to the underlying original contract (fee schedule). Those activities you did are documented. They are evidence of complete performance of the conditions precedent (requirements) to make the promise (of payment) enforceable.
3. The employer is estopped (legally stopped) from breaching the promise.
4. The court can enforce the promise to uphold your reasonable expectancy.
That means an order of the court to tender payment in full.
This is not a traditional contractual analysis, so be sure to share this JOC, the Fee Collection Guide, and Contract as Promise with your lawyer. You didn’t find the candidate so under strict contract principles pursuant to your original fee agreement, there was no contract formed. That’s because there was otherwise a failure of consideration (bargained-for benefit – a find) received by the client. Promissory estoppel is being substituted for the find as a matter of fairness.
Waiver By Conduct
That’s why you wrote me, Mark. This treatment by the “client” is unfair. Here it led you on throughout the undoubtedly extended recruiting and hiring process. Didn’t it waive (relinquish) its right to insist on literal performance of the original contract? Wasn’t this a waiver by conduct consistent with the course of dealings between the parties?
You must be able to prove that you fully performed all terms (provisions) and conditions (other requirements) to getting paid, just as with any contract claim. If not, the terms must be waived or the conditions must be excused. Simply stated, this means the employer intentionally didn’t require compliance with them.
A typical example of waiver is the “only through HR” business. If the employer is sloppy and lets you communicate with hiring managers, you’re fine. It waived its right to insist on literal performance of the original contract. It is then estopped (again, legally stopped) from asserting that right.
What did your client do wrong, Mark?
See what I mean?
In these cases, it’s imperative to show the detrimental reliance on the promise. That’s how a court can compute the amount of your reliance damages.
Get the Worksheet
Those damages are organized by using our unique Pre-Placement Activities Worksheet.
To get it,
- Say, “Charles Fried, friend in need!”
- Go to www.placementlaw.com.
- Click the red JEFF’S ON CALL! button.
- Type Pre-Placement Activities Worksheet in the Subject field.
- Click Send.
I’ll reply with the Worksheet.
The Worksheet information should be itemized in the ve-r-r-y tough letter your lawyer writes to that “un-client”. Let’s get you paid for all that time and effort!
Best wishes for every success!